Consumers have unprecedented opportunity to be active shapers of the products and services they buy and use, rather than passive receivers, taking whatever companies provide. Apples most recent litmus test on corporate social responsibility with its key Chinese supply chain manufacturing partner, Foxconn, and resulting consumer outcry is but just one example of the power that consumers have to sway products manufacturers to alter their business patterns.

At the recent World Economic Forum (WEF) in Davos, Aron Cramer (CEO and President of Business for Social Responsibility or BSR) observed at one workshop the “fast-changing relationship between businesses and consumers. The question on the minds of many of the business executives in the room was “is this good or bad for business”. The answer to this particular either/or question is undoubtedly both. Companies that stay ahead of this curve by involving consumers in product design; providing transparent information about the social and environmental content of these products, and looking at new models to provide value in new ways will prosper. Those that don’t will find growth hard to come by.”

Scaling Consumption in a Smart and Sustainable Way

The WEF has devoted a great deal of attention to the issue of scaling consumption sustainably as the world economy shifts both demographically and economically. WEF examines these issues in a report entitled: More with Less: Scaling Sustainable Consumption and Resource Efficiency.The study properly takes a “systems view” of sustainable consumption. In other words, rather than focusing just on the demand side, WEF looks at the challenges and possible solutions through a value-chain centric lens of what they describe as:

consumer engagement (demand)

value chains and upstream action (supply)

policies and an enabling environment to accelerate change (rules of the game).

“Making your business sustainable in today’s world is an absolute imperative. The business case for sustainable growth is clearer than ever and the urgency of the issues we face means that business leaders have no choice but to act. ” Paul Polman. Chief Executive Officer, Unilever

As WEF explains, “The main outcome is the identification of key focus areas for business leadership through concrete goals and collaboration across industries”. For this report, WEF engaged with chief executive officers, business leaders and experts worldwide, seeking answers and thoughts centered six key questions:

What are the key trends in sustainable consumption?

What is the size of the opportunity for countries, companies and consumers?

What are the barriers to scaling existing models of sustainable consumption?

What does getting to scale look like?

What new solutions are needed to get to scale in sustainable consumption?

How can we achieve scale by working collectively and creating action on new fronts?

Barriers, Mind Sets and Complexities- Oh My!

To no surprise, the report identified a number of internal and external barriers to staving and influencing scalable and sustainable consumption, notably (according to the report):

Consumers lack incentives for sustainable consumption and are confused by mixed messages. The study noted that one survey of British consumers indicated that 70% were uncertain about the environmental performance of the products they buy. I have seen similar surveys here in the United States that compare with the British results

Supply chains are complex, opaque and interconnected. Deep supply chains, like Apples or the textile industry, create many complexities that place limits to in certainties sustainable sourcing

Technology remains costly and inadequately deployed. The study notes that “Fewer than 20 facilities in the world are certified to melt down and recycle the cathode ray tubes of old television sets, and all are in Asia. E-waste, which at present largely originates in the US and Europe will travel across multiple countries and continents for recycling – putting the environmental benefits into question and causing additional social concerns”. That being said, more collaborative enterprises across industries and economies can replace the linear economies that characterize western industrial nations, and create more opportunities to expand technologies further and wider.

Policy incentives remain weak. The report notes that “trade systems and tariffs rarely differentiate between unsustainable and more sustainable alternatives, preventing a potential increase of 7–13% in the traded volumes of sustainable products

Short-termism dominates the landscape, and traction in fast-growing markets remains low. Typical of capitalism and free enterprise, most companies growth targets rarely look out father than a few years, and seek short term gains to keep shareholders happy. The WEF report noted that “55% of FTSE 100 company sustainability targets were to be achieved within 1–2 year timeframes, while only 18% looked out to 2018–2020”.

The graphic below suggests some strategies in the report to overcome these barriers along the three key value-chain points as described above.

Solutions for Scaling Economies (Source, WEF, 2012)

Moving Toward a Circular Economy

Something else also happened “on the way to the Forum” (well actually at the Forum) that may offer some insights and solutions that are discussed in the WEF report. At Davos, Ellen MacArthur, head of the non-profit Ellen MacArthur Foundation, suggested that while” rapid technological evolution across all major industry sectors,{was taking place] … very little change within the economic model itself {has been occurring]. The economy is still based on a linear “take, make and dispose” model.” A new report Towards the Circular Economy, analyzes the international business case behind the idea of shifting from a linear to a more circular economy.

“The essence of the circular economy lies in designing goods using technical materials to facilitate disassembly and re-use, and structuring business models so manufacturers can reap rewards from collecting and refurbishing, remanufacturing, or redistributing products they make. In this model all things are made to be made again, ultimately using energy from renewable sources[and in a less toxic manner]. Companies shift to focusing on selling performance in the place of product, and consumers now become users.” – Ellen MacArthur

Make sense? Well if Ms. MacArthurs numbers are correct, “embracing the circular economy model could lead to an annual economic opportunity of up to $630bn a year towards 2025.” Where do I sign up!!?? Still interested? Read more about the circular economy, ways to leverage the entire supply chain and build sustainable, scalable consumption here and view a fascinating video here. .

As Aron Cramer mentioned in a GreenBiz article in January, the time for sustainable consumption is now. “The need to develop new consumption patterns is the mother of all innovation challenges. The race to dematerialize is on. Some of this will come from the digital revolution, as newspapers can now be delivered wirelessly to e-readers instead of plopping dead trees on the doorstep. But some of the innovation will come from redesigning business models.” Perhaps Mr. Cramer and Ms. MacArthur are onto something.

Are you, as consumer, as manufacturer, product designer or corporate executive, or even as fellow Planet-eer, ready to help make that change? We can change the rules of the game together, for a stronger, more circular economy. As Captain Planet says, “The Power is Yours”.

Six months before that (nearly a year ago), I presented my thoughts about the IPEs report that leveled complaints against the IT/Electronics industry and the overall performance of nearly 30 major manufacturers and their respective key parts suppliers. The report focused on “the openness of IT firms and their responsiveness to reports of environmental violations at suppliers”. Concerns were raised in the report regarding levels of environmental toxins and pollutants being discharged in rivers and streams and into air sheds.

Many people have asked me over the past half-year why Apple is being uncooperative or secretive. Well, “secrecy” has always been part of the Apple mystique, but of course so has evolutionary and disruptive innovation. The problem as I saw it then (and this thought has now been vindicated) is when it comes to corporate social responsibility and sustainability, transparency is the name of the game, not secrecy. I also suggested that Apples supplier network may be too big to handle and they lack the tools, systems and technologies to perform adequate supplier training and oversight. Combined with inconsistent Chinese regulatory agency oversight on its industrial manufacturers, this presented difficult challenges to a workable, and meaningful sustainable supply chain solution. But Nike did it, so why couldn’t (or wouldn’t) Apple, I asked?

My advice last September to Apple and new CEO Tim Cook was to step up and be as evolutionary on corporate social responsibility and sustainability matters as it is with its products. My exact words were: “show humility, take responsibility, and act swiftly and collaboratively.”

Gladly I am happy to report that Apple has wised up and stepped voluntarily under the glare of public scrutiny.

2012: Enter Mr. Cook…the New, Improved, Socially Responsible Apple?

"Good Apple"

In its Supplier Responsibility 2012 Progress Report, the company states it is “committed to driving the highest standards for social responsibility throughout [its] supply base”. It adds: “We require that our suppliers provide safe working conditions, treat workers with dignity and respect, and use environmentally responsible manufacturing processes wherever Apple products are made.”

The 156 companies it lists alongside the report on its Supplier Responsibility website account from more than 97 per cent of what Apple pays to suppliers to manufacture its products. A complete picture of all the thousands of suppliers in Apples supply chain may be daunting, but at least the company has captured the suppliers where the “greatest spend” is.

In 2011, we conducted 229 audits throughout our supply chain — an 80 percent increase over 2010 — including more than 100 first-time audits. We continue to expand our program to reach deeper into our supply base, and this year we added more detailed and specialized audits that focus on safety and the environment.

Apple-designed training programs have educated more than one million supply chain employees about local laws, their rights as workers, occupational health and safety, and Apple’s Supplier Code of Conduct.

Our audits have always checked for compliance with environmental standards. In 2011, in addition to our standard audits, we launched a specialized auditing program to address environmental concerns about certain suppliers in China. Third-party environmental engineering experts worked with our team to conduct detailed audits at 14 facilities. We uncovered some violations and worked with our suppliers to correct the issues. We will expand our environmental auditing program in the coming year. [violations unearthed included dumping wastewater onto a neighboring farm, using machines without safeguards, testing workers for pregnancy and falsifying pay records]

We have a zero-tolerance policy for underage labor, and we believe our system is the toughest in the electronics industry. In 2011, we broadened our age verification program and saw dramatic improvements in hiring practices by our suppliers. Cases of underage labor were down significantly, and our audits found no underage workers at our final assembly suppliers. [Apple said it found six active and 13 historical cases of underage labor at some component suppliers, but none at its final-assembly partners]

We offer continuing education opportunities at our suppliers’ facilities free of charge. More than 60,000 workers have enrolled in classes to study business and entrepreneurship, improve their computer skills, or learn English. And the curriculum continues to expand. We’ve also partnered with some local universities to offer courses that employees can apply toward an associate degree.

Apple has vowed to deal with worker abuses, hoping to deflect criticism it was turning a blind eye to cases of poor working conditions in a mostly Asian supply chain. Perhaps in a huge move, Apple will allow independent auditors from the Fair Labor Association to also be part of the future auditing process. In an interview last Friday, Mr. Cook said Apple’s vow to double the number of supplier audits along its supply chain is “raising the bar” for the entire high technology industry, and that more change is on the way. Cook said “All of this means that workers will be treated better and better with each passing year…It’s not something we feel like we have done what we can do, much remains to be done.”

The San Jose (California) Mercury News quoted analyst Ken Dulaney with Gartner Research who wondered why this may have taken so long to happen. “Who knows why they didn’t do this sooner? It could have been because of Steve Jobs. Maybe with Cook’s financial background he’s trying to move Apple toward less secrecy, which would be a very good thing. It’s part of their trying to be a good global citizen.”

Under Scrutiny

Either way, Apple will continue to be under watchful eyes, as environmentalist and labor activists continue to push for more reforms by American companies doing business overseas. Apple still will need to double down its efforts to respond more proactively to the many environmental impact related issues reported in the past by its major suppliers, especially in China. But for a company that has played its cards extremely close to the chest, it’s a major breakthrough, if time proves the intent to be true.

Judy Gearhart, executive director of the International Labor Rights Forum in Washington, D.C, said that how the industry as a whole responds” depends how engaged they [Apple] are going forward. You see companies make these commitments and there’s often a lot of fanfare, but it doesn’t always pan out the way they say it will.”

Maybe Mr. Cook is the one “Good Apple” that will save the bunch. Let’s hope so.

Here we go again. Six months ago, I presented my thoughts about a report by Chinese NGO Institute of Public and Environmental Affairs (IPE) that leveled complaints against the IT/Electronics industry and the overall performance of nearly 30 major manufacturers and their respective key parts suppliers. The report focused on “the openness of IT firms and their responsiveness to reports of environmental violations at suppliers”. Concerns were raised in the report regarding levels of environmental toxins and pollutants being discharged in rivers and streams and into air sheds.

Worker complaints about unsafe working conditions and acute health problems were presented. The IPE gave opportunities to every company referenced in the report to initiate an open and two-way dialogue, and most did …except Apple Electronics. According to the report, Apple was more secretive about its supply chain than almost every other American company operating in the China. Apple came up among the laggards among 29 major electronics and IT firms in a transparency study drawn up by a coalition of China’s leading environmental groups.

These are the iPad and iPod guys for crying out loud! The evolutionary wizards who have shaped and fundamentally changed the way that most consumers behave, work, interact and get on with their daily lives. Those guys who at one point this summer became the wealthiest company in the United States…this before iconic CEO Steve Jobs retired.

Apple- Skinned Again

Following the early 2011 report, the IPE performed five more months of research and field investigations and reported that “the pollution discharge from this enormous industrial empire has been expanding and spreading throughout its supply chain, seriously encroaching on the local communities and their environment… the volume of hazardous waste produced by suspected Apple Inc. suppliers was especially large and some had failed to properly dispose of their hazardous waste.”

The IPE reported (rather colorfully I might add) that 27 suspected suppliers to Apple had known environmental problems. The IPE noted that in Apples ‘2011 Supplier Responsibility Report’, “where core violations were discovered from the 36 audits, not a single violation was based on environmental pollution. The public has no way of knowing if Apple is even aware of these problems. Again, the public has no way of knowing if Apple has pushed their suppliers to resolve these issues. Therefore, despite Apple’s seemingly rigorous audits, pollution is still expanding and spreading along with the supply chain.”

IPE reported that “during the past year and four months, a group of NGOs made attempts to push Apple along with 28 other IT brands to face these problems and the methods with which they may be resolved. Of these 29 brands, many recognised the seriousness of the pollution problem within the IT industry, with Siemens, Vodafone, Alcatel, Philips and Nokia being amongst the first batch of brands to start utilizing the publicly available information. These companies then began to overcome the spread of pollution created by global production and sourcing, and thus turn their sourcing power into a driving force for China’s pollution control. However, Apple has become a special case. Even when faced with specific allegations regarding its suppliers, the company refuses to provide answers and continues to state that “it is our long-term policy not to disclose supplier information.”

The IPE offered its opinion that “Apple has already made a choice; to stand on the wrong side, to take advantage of the loopholes in developing countries’ environmental management systems, and to be closely associated with polluting factories.”

IPE concluded that Apple needed to own up and be accountable for its supply chain for the following four reasons:

“… any company that produces a large amount of hardware must bear the responsibility for the environmental and social costs incurred during the manufacturing process.

Secondly, the suppliers who violate the standards for levels of pollutants emitted and who ignore environmental concerns and workers’ health do these things with the aim of cutting costs and maximizing profits.

Thirdly, Apple Inc. understands that when passing the blame for social responsibility it can be difficult to pull the wool over the eyes of the general public…; and

Fourthly, many people do not understand that Apple and other brands’ outsourcing of production is not the same as ordinary purchasing behavior. Various sources of information show that Apple is deeply involved in supply chain management—from the choice of materials to use to the control of clean rooms in the production process.”

So What’s Wrong With Apple?

Apples image problem appears to be getting worse before it gets better and it may be more than just a public relations problem; and it’s not just in China that Apple is facing criticisms. Apple, like most consumer electronics manufacturers is a major user of highly sought after precious minerals, many of them associated with conflict areas (so-called ‘conflict minerals’). Apple in fact sources tin from 125 suppliers that use 43 smelters worldwide. That’s an awful big challenge from a supply chain management perspective. But Apple was still a bit slow to step up like other key IT companies like Dell and Intel and collaborate with the Electronics Industry Citizenship Coalition in developing a framework to address conflict mineral traceability.

Further complicating the issue is the sheer size of Apples supply chain and the general difficulty that comes in managing dispersed multi-tired supply chains in other countries. In an excellent piece published in GreenBiz this week, Environmental Defense Fund Project Manager Andrew Hutson suggested that “If you’ve got an office in Shenzhen or Hong Kong, it’s very hard to keep tabs on the perhaps thousands of factories you have across China in any given moment”. The article went on to discuss how scrutiny can sometimes lead contractors to move factories to more remote areas, farther away from watchdogs, suggesting that “the sheer distance from headquarters created by chasing low-cost labor to developing countries can effectively reduce accountability”. While cheap labor in far off lands certainly has its benefits, clearly it has its disadvantages and Apple is paying the price.

Many people have asked me over the past half-year why Apple is being uncooperative or secretive. Well, “secrecy” has always been part of the Apple mystique, but of course so has evolutionary and disruptive innovation. The problem is when it comes to corporate social responsibility and sustainability, transparency is the name of the game, not secrecy. In this “WikiLeaks” world of ours, mystique only gets companies mired deeper into areas of suspicion and distrust.

Photo via Michael Holden under Flikr CC License

But perhaps there is more to the issue to noodle on. Is it entirely possible that Apple isn’t ignoring the problem, but rather its supplier network is just too big to handle and they lack the tools, systems and technologies to perform adequate supplier training and oversight? Or is it that Chinese regulatory agencies also lack the resources or institutional oversight necessary to monitor compliance over in-country industrial manufacturers that service multiple consumer brands? Or is it possible that as consumers our insatiable appetite for Apple products is partly responsible for creating such high demand that Apple must reach out to hundreds if not thousands of suppliers to fulfill its orders and keep Apple product lovers happy? Or is the problem a combination of rampant, unsustainable consumerism, poor regulatory oversight, a supply chain ‘gone wild’, AND a deviated moral center on the part of Apple (as the IPE suggests). You see, its complicated and maybe, just maybe, we should all take a close look in the mirror and question our own culpability in this mess.

For any of my dedicated readers, I am by no means being an apologist for Apple. You all know where I have stood in the past by constructively calling for Apple to step up and be as evolutionary on corporate social responsibility and sustainability matters as it is with its products. I noted in my prior post the many key steps that Apple can and must take to effectively make a difference in its supply chain. In addition Treehugger writer extraordinaire Jaymi Heimbuch offered some outstanding advice to new CEO Tim Cook, not the least of which was “requiring transparency in the supply chain and being more direct with suppliers about standards”. My advice is simple Mr. Cook: show humility, take responsibility, and act swiftly and collaboratively.

Rest assured there are more activist organizations shaking Apples tree. And what I fear (as Apple should too), is that one day all that shaking will bring that big old tree down.

The general market fear and scurrying for shelter reminds me that when hikers are caught in a sudden storm, they often seek shelter in a “lean-to” or other protective cover until the skies clear.

I thought that in light of the economic body slamming that has been going on this past week, it’s worth reflecting on some efficiency-based ways that businesses can use to overcome (or at least buffer) some of the external factors that are causing such economic uncertainty. Like the hikers seeking shelter from the storm, there are some “lean-to”-like steps that company’s can take to exert some control and influence — and it all relates to a leaner, greener, smarter enterprise.

The Lean and Green Enterprise

Last winter I wrote about how importance a “lean and green” enterprise was in establishing a smarter, leadership position in a rapidly changing global marketplace. I noted then that a 2009 study suggested that “lean companies are embracing green objectives and transcending to green manufacturing as a natural extension of their culture of continuous waste reduction, integral to world class Lean programs.” Lean was more rapidly accomplished with a dedicated corporate commitment to continual improvement, and incorporating ‘triple top line’ strategies to account for environmental, social and financial capital. I also argued by looking deep into an organizations value chain (upstream suppliers, operations and end of life product opportunities) with a ‘green’ or environmental lens, manufacturers can eliminate even more waste in the manufacturing process, and realize some potentially dramatic savings

So I was reminded this past week that Lean in design, Lean in manufacturing, and Lean in inventory can individually or collectively be key success factors in managing waste in all its many forms. Collectively, this can have a measurably positive effect on a company’s financial, and hence, business performance. A couple of recent articles touched on this topic this week while you were watching your 401(K) equity or stock value tank. But first let’s touch on Lean Design.

Lean Design

I came across an older but very relevant article written in the aftermath of the Internet stock crash in the early 2000’s. The article described product development as involving “two kinds of waste: that associated with the process of creating a new design (e.g., wasted time, resources, development money), and waste that is embodied in the design itself (e.g., excessive complexity, poor manufacturing process compatibility, many unique and custom parts).” The article cautioned that because the design process is the cradle of creative thinking, designers needed to carefully watch what they “lean out” or risk cutting off the creative process to reduce waste. What has happened in the ensuing years has been an incredible emphasis on “green design” that focuses on full product life cycle value, such that “end of life management” considerations have taken on a more relevant and embedded nature in manufacturing.

A Lean Manufacturer Can be a Sustainable Manufacturer

In yet another recent article by manufacturing consultant Tim McMahon(@TimALeanJourney), he notes that “Lean manufacturing practices and sustainability are conceptually similar in that both seek to maximize organizational efficiency. Where they differ is in where the boundaries are drawn, and in how waste is defined”. He notes, as I have in my past posts, that Lean manufacturing practices, which are at the very core of sustainability, save time and money — an absolutely necessity in today’s competitive global marketplace.

Reduce Direct Material Cost – Can be achieved by use of common parts, common raw materials, parts-count reduction, design simplification, reduction of scrap and quality defects, elimination of batch processes, etc.

Business Colleague Julie Urlaub from Taiga Company (@TaigaCompany) summarized a post in a recent Harvard Business Review by green sage Andrew Winston (@GreenAdvantage). The article, Excess Inventory Wastes Carbon and Energy, Not Just Money describes how the global marketplace “ is sitting on $8 trillion worth of ‘for sale’ inventory [the U.S. maintains a quarter of that inventory]. These idle goods not only represent a tremendous financial burden but an enormous environmental footprint ” that was generated in the manufacturing of those goods. Mr. Winston maintains that “If we could permanently reduce the amount of product sitting idle, we’d save money, energy, and material.” The problem is predicting and managing inventory in such fickle times. Winston went on about new predictive tools being advanced by companies that hold promise in nimbly driving inventory demand response up the supply chain. For instance, he noted that “ using both demand sensing software and good management practices, P&G has cut 17 days and $2.1 billion out of inventory. All that production avoided saves a lot of money in manufacturing, distribution, and ongoing warehousing. It also saves a lot of carbon, material, and water.”

What Mr. Winston found shocking though (me too!) was that “even with the fastest-selling, most predictable products, the estimates are off by an average of more than 40 percent. Imagine that a CPG company believes that 1 million bottles of a fast-turning laundry detergent will sell this week. With 40 percent average error, half the time sales will actually fall between 600,000 and 1.4 million bottles. And the other half of the time sales will be even further off the mark.” The process becomes self perpetuating and the inventory racks up along with the parallel environmental footprint, unless somehow the uncertainty can be better predicted. While companies like to have on hand what Mr. Winston referred to as “safety stock”, I have come to know as reserve inventory driven by “just in time” ordering . But that process was shown to have its own flaws such as when orders for goods dried up overnight in 2008 and when it came time to ramp up in early 2010, part counts were insufficient to meet the rising demand.

I really pity the supply chain demand planner, who like the weatherman is subject to the fickle nature of an unpredictable force. Winston wrapped up his article by stating that “ reducing the inventory itself could be the greenest thing [logistics executives] can do”. I had the chance to speak and attend the 2010 Aberdeen Supply Chain Summit where demand response planning was discussed at length and where green supply chain issues were recognized as one of many key attributes in effective supply chain management. In such a volatile economy, its vital that companies keep inventory management in mind as a way to leverage its costs and simultaneously look toward environmental improvements that can reduce waste.

Partnering for Progress

A relatively recent pilot program in the State of Wisconsin just shows how partnering to create a lean focused sustainable manufacturing cluster can have enormous dividends. According to a recent article in BizTimes.com, the Wisconsin Profitable Sustainability Initiative (PSI) was launched in April 2010 by the Wisconsin Department of Commerce and the Wisconsin Manufacturing Extension Partnership (WMEP). The goal according to the article is “to help small and midsize manufacturers reduce costs, gain competitive advantage and minimize environmental impacts”. Forty-five manufacturers participated in over 87 projects evaluated. These projects focused on “evaluating and implementing a wide range of improvements, including reducing raw materials, solid waste and freight miles, optimizing processes, installing new equipment and launching new products. The initial results show that the projects with the largest impact do not come from the traditional sustainability areas such as energy or recycling. Instead, outcomes from the initial projects suggest that transportation and operational improvements are places where manufacturers can look to find big savings, quick paybacks and significant environmental benefits.”

The program is projected to generate a five-year $54 million economic impact, including: $26.9 million in savings, $23.5 million in increased/retained sales and $3.6 million in investment.

Together, lean design, lean manufacturing and effective, lean inventory management offer a “trifecta” approach for industry to identify, reduce or eliminate and track waste. Effective use of these tools cannot only drive both in how the product is designed and produced but offers opportunities all the way up the supply chain to manage effective inventory and resource consumption. As the University of Tennessee studied concluded, the implications of lean strategies are 1) Lean results in green; and 2) Lean is an essential part of remaining competitive and maintaining a quality image. Put the two together and a company can virtually be unstoppable…or a least a bit more recession-proof and “shelter from the storm”.

In Part 1 of this series on sustainable procurement, I laid out my vision of the heart of a sustainable, green supply chain that runs through its procurement function. It’s simple to show how every product has a hidden human health, environmental and social impact along the entire supply chain. However, it’s been challenging to bring sustainable procurement into a central decision making role in line with organizational business goals. The results to date have been a mixed bag, as I alluded to when I mentioned Aribas new Vision 2020 report and companion dialoguing process, now underway.

Sustainable Procurement: back to management!

On the heels of the Ariba effort comes a promising benchmark report recently released by HEC-Paris and Ecovadis. Entitled “Sustainable Procurement: back to management!” this study(available for download on Ecovadis’ site)has risen to rescue and tempered my fears of devolving sustainable procurement. In fact, the report may suggest a positive “tipping point” in favor of sustainable procurement. The efforts behind the 2011 edition of the HEC/EcoVadis Sustainable Procurement Benchmark were carried out between the fall of 2010 and early 2011. This benchmarking process started in 2003 and the 5th conducted since that time.

The objective of the benchmark is to provide a snapshot on what’s trending in the area of Sustainable Procurement practices. According to the authors, the following overarching questions were explored:

How has the vision of the Chief Procurement Officers (CPOs) evolved?

What tools and initiatives seem to be the most effective over time to drive changes?

How is Sustainable Procurement progress measured?

What are the remaining challenges faced by most Procurement organizations?

The study identified three main drivers behind Sustainable Procurement initiatives: Risk Management, Value Creation, and Cost Reduction. These findings mirror some of the trending areas and critical issues identified in the Ariba report. HEC and Ecovadis suggested that these three drivers’ shows that many organizations are now facing new expectations in terms of Corporate Social Responsibility and Sustainability from the Procurement Departments of their clients and, suggest that having a sustainable procurement program in place can become a competitive advantage.

Sustainable Procurement Remains High on Executives Agenda

92% of the surveyed Companies consider Sustainable Procurement a “critical” or “important” initiative, even though for the 1st time this year, “Risk Management” took over as a priority initiative.

The major progress made in 2011 is on the support from the Top Management (+24%) thus demonstrating that Sustainable Procurement is attracting more and more interest from Executive Committees, and significant progress was made in implementation of tools and organizational changes.

Significant organizational changes have been implemented: 45% of companies already have “dedicated teams” and 57% report having trained a majority of procurement staff on Sustainability.

Whereas in 2007 only 1/3 of companies were using formalized methodologies for assessing their suppliers’ sustainability performance, in 2011 two-thirds of them are now implementing dedicated tools (either internal or leveraging 3rd parties).

Finally 92% companies have increased (56%) or maintained (36%) their budgets related to Sustainable Procurement, which should yield more changes in the future years.

Tools for Sustainable Procurement on the Rise

The HEC/Ecovadis study found that basic tools such as “Suppliers Code of Conduct” , “CSR contract clauses” and “Suppliers self-assessment“ were now the rule rather than the exception among companies surveyed by a ratio of 2 to 1, but interestingly were still found to limited value in terms of risk management. What I found encouraging was that the study found maturation in the types of tools used, including “Supplier Audits” and “Supplier CSR information databases“. This type of work has clearly been evident in what I have reported in the past, especially among multi-national companies with contractor manufacturing operations in developing economies (like China, India and Brazil). These advanced tools offered more opportunities for suppliers to engage directly with buyers, allow for data verification, and offer direct recommendations for supplier CSR and sustainability improvement. Over half of the companies surveyed had advanced to this next level. Finally, when asked what the most effective uses of resources were in developing a Sustainable Procurement Program, respondents mentioned 1) top level support, 2) creation of cross functional teams and 3) training, as key success ingredients. All three of these success factors had shown substantial improvement over the past several benchmark cycles, according to the study.

Sustainable Procurement Creates Value

This is not the first study that has come along that demonstrates value and return on investment from sustainable procurement. I wrote earlier of a joint study by Ecovadis, INSEAD and PriceWaterhouseCoopers that demonstrated similar results. In that study, payback from most green procurement activities was huge. Companies surveyed were able to benefit quickly from risk management reduction and potential revenue growth opportunities, due in part to sustainable procurement. The study also found that there were additional ‘value creation’ opportunities that could be realized if procurement departments collaborated more closely with the marketing and R&D departments upstream on the projects.

Also, a study in 2009 by a company named BrainNet (Green and Sustainable Procurement: Drivers and Approaches”) looked at sustainable procurement and value creation and found that “… procurement with an ecological and social conscience is not a cost factor, but a value factor…Companies that pursue a consistent approach to green and sustainable procurement receive an above-average return on capital deployed.” The study produced what they describe as an “evolution curve for sustainable procurement” that describes the maturity of various approaches of sustainable procurement. This curve compares well with the most recent EcoVadis/HEC findings and suggests that there may be a widening gap between leaders and laggards.

Sustainable ‘green’ procurement embraces a holistic approach, one that encompasses organization, people, process, and technology to create greater product value along the entire supply chain. This type of value creation can managed by establishing firm triple bottom line based metrics from upstream suppliers to downstream users and using the procurement function to support product and process innovation and accounting for total cost of ownership (TCO).

What’s Next?

According to the most recent HEC/EcoVadis benchmark report, it is clear that new green and social business models depend upon innovation, and a gap still among many organizations to implement a truly Sustainable Procurement vision. This was clearly in evidence by the lack of mentions by Chief Procurement Officers that I discussed last week in the Ariba study.

The HEC/Ecovadis report suggests that when implementing Sustainable Procurement practices, a three phase process can get the ball rolling, starting first by orienting and energizing the procurement function through:

“1. Communication activities: Building awareness among employees regarding the approaching change, the benefits and the steps to be implemented.

2. Training and Performance support: ensuring that the initiative is being understood among those who are to execute the change or be part of it, and leading to buy-in of the key stakeholders.

3. Rewards and recognition: ensuring that employees – and suppliers – who embrace change are properly recognized and rewarded. This final step is when implementation is not only measured, but also celebrated.”

I’m going to say it again…and again. All sustainable business roads lead through the procurement function. The procurement function is the perfect nexus and a critical organizational player that touches product designers, engineers, multiple tiers of suppliers and subcontractors, manufacturing operations, logistical warehousing and distribution and the end users. Yes indeed, things are looking up for sustainable procurement…it’s ‘game on’.

To paraphrase a timeless Bob Dylan song, “The Times They Are A’ Changin’” is no understatement. You can read the details from across the globe in the news every day and are rapidly happening simultaneously on political, economic and social levels. And business is also making radical changes in the sustainability and corporate social responsibility (CSR) frontier.

“Then you better start swimmin’Or you’ll sink like a stoneFor the times they are a-changin’.”- Dylan

One area that appears to be in movement is Procurement. You know, those folks on the third floor in the back that order stuff? Well, wrong! I’ve maintained that the heart of a sustainable supply chain runs through its procurement function. That’s because every product- every single purchase- has a hidden human health, environmental and social impact along the entire supply chain. My previous posts have discussed how the procurement function is a vital cog in product value chain. Purchasing staff are the “gatekeepers” that can access powerful tools and serve as a bridge between supplier and customer to assure that sustainability and CSR issues are taken into account during purchasing decisions. 2010 was a watershed year for sustainability initiatives and supply chain management and I predicted that 2011 would see greater progress.

So I was incredibly excited when I recently got my hands on a relatively new white paper from Ariba, entitled “VISION 2020 -Ideas for Procurement in 2020 by Industry-Leading Procurement Executives”. According to the conveners of the document, the “objective [of the effort initiated in 2010] is to initiate a dialogue on the future of procurement and to create a roadmap for how to get there.” For that, they connected with leading practitioners and executives from around the world and across a variety of sectors to share their ideas, best practices and to read the tea leaves as to where procurement might be in 10 years.

And while the initial report laid out some pretty intriguing and widely varying trends and predictions about the state of procurement in the corporate function, I was unfulfilled. I was all ready to read about how the emergence of sustainability in the marketplace was going to drive procurement decisions. I expected to hear how top flight companies around the world were collaborating with their supply chain, implementing staff training on ‘green purchasing’ practices, and implementing sustainability driven supplier audits and ratings scorecards.

Boy, was I wrong! Only ONE mention of the word “sustainability” (thank you Dr. Heinz Schaeffer, Chief Procurement Officer, Northern and Central Eastern Europe for AXA), and no mentions of “responsible sourcing”, “green supply chain” or “sustainable sourcing”. I would have expected more from chief procurement representatives from the likes of KeyBank, Maersk, Sodexho, and former execs from Hewlett- Packard, General Motors, and DuPont. Most of these companies are generally considered leaders in the sustainability space. So why would there be a disconnect between what companies are doing in design, manufacturing and product life cycle management and the procurement function?

Before we go too far, its helpful to define what “sustainable procurement” is. While there is no singular definition for it, I like the definition offered up by the UK-based Chartered Institute of Purchasing & Supply (CIPS). CIPS definition is “a process whereby organisations meet their needs for goods, services, works and utilities in a way that achieves value for money on a whole life basis in terms of generating benefits not only to the organisation, but also to society and the economy, whilst minimising damage to the environment.”. And what CIPS defines as ‘whole life basis’ is that “sustainable procurement should consider the environmental, social and economic consequences of design; non-renewable material use; manufacture and production methods; logistics; service delivery; use; operation; maintenance; reuse; recycling options; disposal; and suppliers capabilities to address these consequences throughout the supply chain” [emphasis added].

It’s a good thing that the authors from Ariba stated that “The [2020 Vision]report is intended not as an end, but rather as a point of departure for much discussion and debate around where procurement can and should be setting its sights for the year 2020 and beyond. In fact, Ariba invites readers to “join the debate and to extend the discussion with new ideas by joining the conversation. I have and I hope you will too. But I think I’ll start right here first.

Key Findings of Interest:

The report identified six key trending areas and take-aways among the participants who have weighed in so far, namely:

Procurement devolves- with spend management requirements shrinking, companies are being forced to optimize what resources they have and make better informed decisions. More work at the business line level will occur, possible eliminating the central procurement function entirely. Money and metrics will drive most decisions as companies face leaner profit margins. There will be a need to engage end customers more and more and leverage relationships.

The new supply management emerges– some traditional sourcing functions may become outsourced. Strategy “will tie directly to an enterprise’s end customers and it will be more cognizant of the diversity of desires and requirements within the customer base”.

Skill sets change. The Chief Procurement Officer and staff must have broader skills that allow them to not only create opportunities for revenue enhancement internally and optimized “spend”, but also be more in touch with end customer values-driven needs. Procurement staff need to be tuned into multiple tiers of the supply chain, dive deep “inside the supply chain and bring [issues] forward to the designers within [individual] companies”.

Instantaneous intelligence arrives. Market pricing will become more transparent [the Cloud forces transparency to some degree]. Companies will have to rapidly extract innovation and other value from supplier bases, and build exclusive commercial relationships with leading suppliers that share both risks and rewards.

Collaboration reigns- There will be as the report notes a “big emphasis on driving and taking innovation from the supply base… the supply role will be less ‘person-who-brings-innovation-in’ and more ‘person-who-assembles-innovation-communities-and-gets-out-of-the-way’. Suppliers are being asked more often to participate in early design and product development as a way to leverage risk and control overall product life cycle management risks.

Risk management capacity and demands soar– as companies are already realizing, effective procurement relies on response to risk management variables (financial, ethical, and operational performance). Companies must create “360-degree performance ratings and provide greater transparency into market dynamics, potential supply disruptions, and supplier capabilities”. A few participants noted that there will be a “big expansion in the kinds of risks companies address in their supply chains, considering, for example, such things as suppliers’ sustainability, social responsibility…”.

Now if I read in between the lines, I can easily pluck out a number of key procurement trends from the 2020 report that transfer well to sustainability and responsible sourcing. Risk Management. Collaboration. Design phase (life cycle) engagement of multi-tiered suppliers. Key performance metrics. Responding to consumer demands. Supplier performance ratings.

Courtesy babycreative via Flickr CC

One takeaway for me appears that there may be a disconnect still between the procurement function and other functions within organizations. So is the procurement function still operating in obscurity in most organizations? It all depends who you talk to but also on your skill at reading the tea leaves.

Rest assured that compared to only a few years ago, more companies that are seeking to manage the life cycle environmental impact of their productsfrom design and acquisition of materials through the entire production, distribution and end of life management. They’re finding sustainable procurement to be a valuable tool to quantify and compare a product or component’s lifetime environmental and social impact early on in a products value chain while positioning the company for smart growth in a rebounding economy. We may be at a sustainable procurement “tipping point” and Part 2 will present the results of a very promising benchmark report recently released by HEC-Paris and Ecovadis, which tells a much different story.

I was reminded of that Don Henley (The Eagles) solo hit from back in the 1980’s when I read about Greenpeaces latest initiative and report…aptly titled…you guessed it, “Dirty Laundry”. The report focuses on the high levels of industrial pollutants being released into China’s major rivers like the Yangtze and the Pearl and commercial ties between a number of international brands such as Adidas, Nike and Li-Ning with two Chinese manufacturers responsible for releases of those hazardous chemicals.Greenpeace has also launched the challenge ‘Detox’ Campaign, calling “brands, especially Adidas and Nike, to take the initiative and use their influence on its supply chain.” The organization unfurled its characteristic banners at Adidas’s main retail store in Beijing this week.

There are several nuances to this story that are important to pass on and collaborative opportunities (rather than the finger-pointing that has plastered Twitter and other media the past 24 hours) to explore.

Supply Chain Challenges …Again!

This latest supply chain environmental wrinkle underscores the challenges multi-national organizations (MNC) are facing daily in oversight and enforcement of first tier, second tier or lower contract manufacturers. If it’s not Apple under the radar, its Nike, or Adidas, or GE…who’s next? Recent events concerning Apple Computers alleged lax supplier oversight and reported supplier human rights and environmental violations only shows a microcosm of the depth of the challenges that suppliers face in managing or influencing these issues on the ground.

To be fair, although the pollution is real and the threat of toxics contamination very real, it’s possible that Greenpeace may be sensationalizing Nikes and Adidas’s culpability. In fact, neither company directly is involved with the key manufacturers labeled in the Greenpeace report. The two manufacturers are the Youngor Textile Complex in Ningbo, an area near Shanghai along the Yangtze River Delta, and Well Dyeing Factory Ltd. in Zhongshan, China, along the Pearl River. The Younger Group is China’s biggest integrated textile firm.

“Game on, Nike and Adidas. Greenpeace is calling you out to see which one of you isstronger on the flats, quicker on the breaks, turns faster and plays harder at a game we’re calling ‘Detox’,” “Whether you’re ‘All in’ with Adidas or believe in the Nike motto to ‘Just do it,’ you can challenge the brand you wear to win the race to a clean finish.” -Greenpeace DeTox campaign’s website.

(from Greenpeace Report, "Dirty Laundry")

Both Nike and Adidas admitted jointly that said their work at Youngor is limited to cut-and-sew production — not “wet processing” such as dyeing and fabric finishing that Greenpeace says is the cause of the chemical discharge. Greenpeace did not hide behind that fact but made the point (perhaps rightly so) that “As brand owners, they are in the best position to influence the environmental impacts of production and to work together with their suppliers to eliminate the releases of all hazardous chemicals from the production process and their products”. I agree on the grounds that effective supply chain sustainability practices and corporate governance must be driven by the originating manufacturers that rely on deep tiers of suppliers and vendors for their products.

That being said, I think that to call out Nike and Adidas specifically (along with other companies like Puma) is to suggest that they are not doing the right thing as regards sustainability in the apparel industry. For instance, Nike has learned from its mistakes if the past (especially on the labor/human rights side of social responsibility) and implemented aggressive governance frameworks and on the ground oversight programs. Also, the Nike Considered Index evaluates solvents, waste, materials, garment treatments and innovation, and the company has an internal working group constantly evaluating Restricted Materials lists.

Kick ’em when they’re up

Kick ’em when they’re down

Kick ’em when they’re up

Kick ’em all around- (Don Henley)

Chinese Laws and Regulatory Oversight- Not in Sync

As I noted recently, China is still in the “ramp-up” phases of economic development. Plus it’s been evident for some years that enforcement of environmental laws and regulations by government agencies has not been on par with the intent of the laws. According to the report, samples taken from the facilities contained heavy metals and alkylphenols and perfluorinated chemicals, which are restricted in the United States and across the European Union. These chemicals have reproductive and hormone disruptive effects Therein lies another institutional problem…the laws in the home countries of the MNC’s are not in sync with those in the host manufacturing country- in this case, China.

Writing yesterday in China Hearsay, Beijing based lawyer Stan Abrams offered this up. “This is a classic law versus CSR problem. The law here in China allows for this activity, yet the allegation is that this is a harmful activity. Should the companies in question merely follow the law or “do the right thing” and either sever ties with the polluter or pressure it to change its behavior?”

It’s likely that (for the foreseeable future) Chinese political and economic systems will remain focused on rapid development at all costs. So it’s critical that local/in-country government policies be aligned as well to support capacity-building for companies to self-evaluate, learn effective auditing and root- cause evaluation, institute effective corrective and preventive action programs and proactively implement systems based environmental management systems.

Multi-Sector Collaboration is the Answer

The apparel industry as a whole has taken a very proactive stance in looking at ways to redesign sustainably, produce its goods taking a cradle-to cradle perspective, and manage toxic chemical use and waste streams so that human and environmental exposures are minimized. The multi-stakeholder Sustainable Apparel Coalition ironically includes Nike, the Gap Inc, H&M, Levi Strauss, Marks & Spencer, and Patagonia (some of whom are also being targeted by Greenpeace). Over 30 companies have committed to collaborating in an open source way to drive the apparel industry in developing improved sustainability strategies and tools to measure and evaluate sustainability performance. In addition over 200 outdoor products companies from around the world have been working together on sustainability best practices and standards, called the Eco-Index, led by the Outdoor Industry Association and European Outdoor Group.

The most successful greening efforts in supply chains in “tiger economies” are based on value creation, sharing of intelligence and technological know-how, and support in developing environmental regulatory frameworks that have the force of law. MNC’s and contract manufacturers can collaboratively strengthen each other’s performance, share cost of ownership and social license to operate and create “reciprocal value”. Greenpeace wants MNC’s to establish “ clear company and supplier policies that commit their entire supply chain to the shift from hazardous to safer chemicals, accompanied by a plan of action that is matched with clear and realistic timelimes”. Agreed with that sentiment, but many hurdles remain to cross.

Youngor Textiles, Adidas and others cited in the report have not hidden from the findings, and Youngor has committed to working jointly with Greenpeace to find a workable solution to remove potentially harmful toxics from the apparel manufacturing supply chain. Solving this problem on the ground will take a multi-stakeholder effort to 1) balance contractual arrangements among many parties, 2) craft good law and enforceable regulations, 3) drive clean chemistry, 4) redesign production processes and use advanced manufacturing technology, and, 5) develop, implement and maintain robust contactor monitoring.

I will be watching carefully to see how this collaborative effort with an NGO giant and big business unfolds…er, should I say “unfurls”.